Price discovery of delisting offers: Time for a change

The Securities and Exchange Board of India (SEBI) has recently amended the Takeover Regulations providing potential acquirers who trigger a mandatory tender offer an opportunity to directly delist the company. This helps avoid the absurd situation where acquirers who have acquired shares in the tender offer are forced to divest them in a year’s time in order to meet minimum public shareholding requirements. However, it is unclear whether direct delisting will be the preferred option for future acquirers who do not want to manage a listed entity in India.

One of the key factors that work against exercise of this option is the steep premium one has to pay in a direct delisting offer, where the price is determined by a reverse book building method. Generally speaking, it may be more cost effective to do a fixed-price tender offer, followed by a delisting offer on expiry of the cooling-off period.

The question is whether the reverse book building method that is currently adopted for price discovery of delisting offers has outlived its utility.

Akila Agrawal is a partner at Shardul Amarchand Mangaldas & Co. The views expressed in this article are those of the author and do not reflect the position of the firm.